The World Bank's Procurement Myth

by John G. Thibodeau

John G. Thibodeau is director of research at Probe International, a Canadian environmental group.

Executive Summary

The World Bank, once considered the world's premier
foreign aid institution, is fighting for its life. Some
of the bank's biggest donors, led by the United States,
are tired of failed projects and the bank's increasingly
risky loan portfolio and are scaling back their
contributions to the bank's soft-loan window, the
International Development Association. After a year of
tense negotiations, the United States recently decided
not to contribute any new money to IDA in 1997, and any
future American funding remains uncertain.

To save IDA, the World Bank launched a misleading
public relations campaign to convince Congress and the
American public that U.S. taxpayers' contributions to IDA
are good for the American economy because they return in
the form of contracts for U.S. companies.

In fact, U.S. firms receive only about $0.23 in
contracts for each $1.00 the United States contributes to
IDA. Instead of being a boon for the American economy,
IDA appears to be a black hole into which taxpayers pour
billions of dollars for bad projects and pork-barrel
contracts for a few American firms.

Members of Congress and lawmakers from other donor
countries should reject the public relations pitches that
accompany the World Bank's increasingly desperate search
for new funds and refuse to commit their constituents'
tax dollars to IDA in 1997 and beyond.

The Trouble with IDA

In March 1996, after a fierce year-long debate, donors to the World Bank's
soft-loan window, the International Development Association, agreed to replenish
IDA's depleted coffers.[1] But the replenishment is much less
than IDA had hoped--only $11 billion compared to the last replenishment of $18
billion. The United States, once the World Bank's biggest promoter, was the
least willing to give of all IDA donors.

The Clinton administration, which favors a continued
strong U.S. involvement in the World Bank, had hoped to
contribute about $1.3 billion to IDA in each of the next
three years. But the U.S. Congress, now discouraged by
years of destructive bank lending and domestic budget
constraints, made it clear that it would not approve such
a large request. The president had no choice but to
acquiesce; he has not requested any new money for IDA in
1997 and has stated that the administration will ask
Congress for only $800 million in each of the second and
third years of IDA-11 (1998 and 1999), the present
replenishment cycle.

Despite the administration's significantly reduced
request, there is no guarantee that Congress will grant
it. In the early 1990s U.S. lawmakers refused to ante up
all of the dollars pledged for the last replenishment
cycle, IDA-10, which left the United States $934 million
behind in payments. In the absence of any new money for
1997, the Clinton administration has asked Congress to
pay the accumulated arrears in 1997. But IDA's other
donors have retaliated against the U.S. cuts. To keep the
money flowing in 1997, absent a U.S. contribution, IDA's
other donors have established an Interim Trust Fund and
have barred U.S. companies from procuring contracts
funded by that fund. Only in 1998, when (and if) new
money starts to flow, will the United States be eligible
to procure contracts for the full range of IDA-funded
projects. Congress, upset with what it feels is an unfair
penalty, is threatening not to appropriate funds to clear
the arrears unless the ban against U.S. procurement
through the trust fund is lifted.

Because most other countries' IDA contributions are
tied proportionately to U.S. donations by an unofficial
"burden-sharing" agreement, reductions in U.S.
contributions to IDA have led to a drop in funding from
other countries as well. This year the domino effect of
U.S. cuts led to a $7 billion reduction in contributions
to IDA from the last three-year replenishment in 1993.
Should Congress not clear its arrears in 1997, or should
it scale back American contributions in 1998 and 1999,
the future of IDA could be seriously threatened.

The reluctance of donors to fund IDA is, in large part, the result of years
of research and countless studies--by citizens' groups from around the world
and by the World Bank itself--documenting the widespread failure of World Bank
loans (through IDA and the International Bank for Reconstruction and Development)
to alleviate poverty; their devastating environmental, social, and political
effects; and the bank's contribution to the Third World's debt crisis.[2]

Project failures are now legion. Brazil's Polonoroeste road-building project
set much of the Amazon rain forest on fire; India's Sardar Sarovar dam uprooted
240,000 Indians and was condemned by the World Bank's own panel of investigators;
and, also in India, IDA continues to fund the Singrauli coal projects, once
described as the "lower circles of Dante's Inferno."[3]
IDA-funded projects, from massive road-building and colonization projects in
the 1980s to monstrous dam projects in the 1990s, have left a trail of poverty
and destruction in their wake.

Contrary to bank claims, projects like those are not exceptions in an otherwise
beneficial or even benign project portfolio; they are evidence of the bank's
chronic failings that continue to this day. Even bank projects targeted specifically
at the poor--agriculture, irrigation, land settlement, and urban poverty projects,
for example--have routinely had destructive consequences for their intended
beneficiaries.[4]

With such a disastrous record, the World Bank is having a hard time convincing
its critics that it will or can deliver "sustainable development"
and "poverty alleviation." Moreover, criticism of the bank is no longer
the exclusive purview of environmental groups and other private-sector entities.
Scathing internal World Bank reports have disclosed that one-third of the bank's
projects are failing; the Canadian auditor general has called on Canada, along
with its G-7 partners, to undertake a value-for-money audit of the World Bank;
and the Bretton Woods Commission, a group of many of the most powerful international
bankers and financiers in the world, has produced its own critical review of
the World Bank. In its latest self-evaluation report, the World Bank judged
that one in three of its operations in 1994 had not made "an acceptable
contribution to development" and that the percentage of satisfactory outcomes
was "still far too low to be acceptable."[5]

To counter that tide of damning evidence and to win
back the confidence (and dollars) of a highly skeptical
Congress, the World Bank is now attempting to convince
taxpayers that IDA is good business for donors. The
bank's public relations people recently stopped
describing IDA primarily as an "aid
institution" whose main mission was poverty
alleviation and sustainable development. Instead, it
began selling IDA as a "bank" first and
foremost, one that provides extraordinary procurement
opportunities for American businesses. With all of its
conventional defenses of IDA lending refuted and debunked
by one critical study after another, the World Bank has
latched on to the argument most appealing to donor
nations' politicians: economic self-interest.

Procurement: The World Bank's New
Mantra

In hopes of rebuilding its tattered image and helping to secure new funding
for IDA in 1997-99, the World Bank hired former journalist and high-profile
international political consultant Mark Malloch Brown. Shortly after assuming
his new post as vice president of external affairs in late 1994, Malloch Brown
set out to convince the U.S. Congress that IDA provides jobs and contracts for
U.S. firms and is, therefore, good for the American economy and worthy of billions
more in taxpayer dollars. With their eyes set firmly on the IDA-11 negotiations
that would begin later in 1995, the bank and Malloch Brown stepped into new
territory--an ambitious public relations campaign--and, for the first time in
its history, the bank became an advertiser.[6]

The public relations campaign got under way in May
1995, when newspaper ads, citing examples of American
companies that had obtained lucrative contracts for IDA
projects, appeared in major U.S. dailies. The ads, which
ran under the theme "The World Bank: A Good
Investment," described IDA as a safe, low-cost
investment for the United States.

According to the ads, IDA provides "extraordinary" procurement opportunities
to American businesses, including billions of dollars in contracts to design,
supply, and build IDA projects. Moreover, the economic benefits to be gained
from U.S. membership in IDA are so great, claimed Malloch Brown at an April
1995 press conference, that IDA is really the "deal of the century"
for cost-conscious donor countries like the United States.[7]

But Malloch Brown's sales pitch did not stop there. To make sure that Congress
got the message, the bank sought out key supporters and opponents of IDA to
convince them of the business benefits of supporting the bank. At an April 1995
press conference, Malloch Brown described how the bank was lobbying Congress
and legislators from a number of "targeted states," pointing out that
companies in their states were "getting extraordinary procurement opportunities
out of both IDA and IBRD." Malloch Brown went on to argue that the procurement
benefits are so enormous that the net cost of membership in IDA is "extraordinarily
low."[8]

While the bank touted the alleged benefits of procurement on Capitol Hill,
Malloch Brown also revamped the bank's External Affairs Department so that it
could produce more pro-bank public relations and step up its attacks on those
who dared to argue against replenishing IDA's funding. In an internal memo detailing
the reorganization of External Affairs, the World Bank admitted that the restructuring
was prompted by the desperation the bank felt over impending cuts to IDA funding
and set the task of restoring IDA funding as the top priority for the new public
relations machinery. "We are targeting [the U.S.] states . . . so as to
reinforce our IDA legislative strategy," said the memo.[9]

The bank's new strategy was put to the test in July 1995, after a rash of newspaper
articles criticizing the bank appeared in U.S. dailies. External Affairs promptly
responded with an op-ed by Malloch Brown in the conservative Washington Times
that made it clear that the supposed benefits of procurement were now the bank's
primary defense against its critics. Malloch Brown quoted the head of Caterpillar,
Inc., as saying that "IDA is helping to develop markets for American products."
Malloch Brown then went on to describe the benefits of U.S. membership in the
World Bank for U.S. firms. "American companies," he said, "recoup
about $1 in contracts for each $1 the United States contributes."[10]

Almost two years after it began, the public relations campaign can fairly be
called a dismal failure. Despite the bank's best efforts, Congress remains unconvinced
that IDA provides "extraordinary" procurement benefits. A recent House
Appropriations Committee report, which describes a bill that would appropriate
only $525 million of the $934 million the United States is in arrears to IDA
in 1997, chastised IDA, claiming that the United States has uncomplainingly
provided "more than 20 percent of IDA funds over the past 35 years, while
receiving only 10 percent of IDA procurement."[11] Should
a similar bill pass the Senate, the United States would fail to clear its arrears
to IDA and would thereby put itself out of the running for procurement contracts
even after 1997. Clearly, the World Bank has failed to convince Congress of
the benefits of procurement.

And the bank has been unable to back up its claims about the benefits of procurement.
Repeated requests for the figures to back up the "$1 in contracts for each
$1 the United States contributes" statement (and for the methodology used
to calculate the value of contracts won for each dollar contributed) were denied
by Malloch Brown; the office of the World Bank's Canadian Executive Director;
and the bank department that collects those data, the Resource Mobilization
Department. Only after an earlier draft of this paper was distributed to members
of Congress and World Bank officials did bank officials provide some of the
requested information. The information the bank provided only reinforces the
findings of this study.[12]

Inflating the Benefits and Other
Sleights of Hand

Figures leaked from the U.S. Treasury (and the new data provided by the World
Bank) shed light on why the bank initially appeared intent on keeping data on
the true cost of procurement contracts secret. According to those data, between
1986 and 1994 the United States averaged only $0.23 in procurement for every
dollar paid into IDA.[13]

That fact, so well guarded by the bank, contradicts Malloch Brown's claim that
IDA is the "deal of the century" for U.S. taxpayers. It also refutes
his claim that the net cost of IDA to the United States is "extraordinarily
low." In fact, the net cost (defined crudely by the bank's public relations
people as the difference between U.S. taxpayer contributions and the value of
World Bank contracts awarded to U.S. firms) to the United States of membership
in IDA for the nine years from 1986 to 1994 was approximately $5.8 billion.
Since 1960 membership in IDA has had a net cost of approximately $11.9 billion
for U.S. taxpayers.[14]

Even if the bank's claims were true and IDA contracts delivered as many dollars
to U.S. companies as U.S. taxpayers contributed, financing the bank would still
be difficult to justify. After all, such an exercise amounts to nothing more
than the redistribution of U.S. citizens' wealth for the benefit of some privileged
firms. In short, the bank actively promotes corporate welfare--a function at
odds with the bank's avowed aims of promoting market economics and alleviating
world poverty. Development economist Peter Bauer aptly put it another way: "To
argue that aid helps the domestic economy is like saying that a shop-keeper
benefits from having his cash register burgled so long as the burglar spends
part of the proceeds in his shop."[15]

The bank's advertising campaign thus provided a
glimpse of a billion-dollar agency with institutional
schizophrenia: IDA is unsure whether it is a development
institution whose purpose is alleviation of poverty or a
bank whose goal is to benefit companies in donor
countries. In reality, it is neither an instrument of
environmentally and economically sensible development nor
an efficient broker of corporate welfare. The first goal,
alleviation of poverty, might at least arouse the
sympathies of kind-hearted Americans; the second,
corporate welfare, cannot be defended on the basis of
sound economic policy or popular support.

Procurement at IDA

The most common means of comparing the procurement
benefits of one country to those of another is to
calculate each country's procurement per dollar
committed, that is, to divide the value of contracts
awarded to a country in a given year by the amount of
money that country paid to IDA. The World Bank provides
statistics on the value and number of contracts won by
each country, but it has been hesitant to release annual
figures on how much each country contributes to IDA,
thereby complicating a detailed analysis of its claim
that IDA is a "deal" for its donors. However,
the leaked Treasury information (and the new bank data)
on U.S. annual contributions to IDA show that IDA
procurement is anything but a deal for U.S. taxpayers.

Another way to compare procurement benefits to cost is to use figures from
the Organization for Economic Co-operation and Development--which are publicly
available but which measure donor contributions in a slightly different way.[16]
Calculating procurement per dollar committed using the OECD figures shows that
the United States is not alone in earning paltry returns on its IDA dollars.
With the possible exception of the United Kingdom, IDA is not the deal of the
century for other G-7 countries either (Table 1).

For example, when procurement per dollar committed is calculated using the
OECD figures, the average return on U.S. contributions drops to $0.17, the lowest
of the G-7 countries.[17] Italy, Germany, Canada, and Japan
earn between $0.20 and $0.39 in procurement for each dollar contributed to IDA;
France and the United Kingdom receive substantially more, $0.70 and $1.15, respectively.[18]

Those findings clearly indicate that IDA is a net
drain on most of its major donor countries, which
contradicts the World Bank's claims about the benefits of
IDA procurement. The findings also appear to contradict
those of most other studies of World Bank procurement.

For example, recent reports by Canada's Office of Liaison with International
Financial Institutions, a branch of the Canadian government whose mandate is
to help Canadian firms procure contracts for World Bank and other multilateral
development bank projects, and the North-South Institute, an Ottawa-based think
tank, conclude that procurement is a boon for many donor countries. A 1995 OLIFI
study found that the United States averaged $1.59 in contracts for each dollar
committed to the World Bank between 1988 and 1994. The North-South Institute
found that Canada procured an average of $1.18 in contracts for every dollar
contributed to the bank between 1986 and 1991.[19] But neither
of those studies calculates procurement in return for contributions to IDA alone.
Both reports make the procurement picture look rosier by combining IRBD procurement
with IDA procurement.

Inflating the Benefits: Procurement at IBRD

Compared with those of IDA, the IBRD's procurement
returns appear to be a windfall for donor countries, with
most G-7 countries receiving more than 50 times the
procurement benefits (in terms of return on
contributions) from the IBRD that they receive from IDA.
If OECD figures are used to measure contributions,
Germany receives a whopping $29.22 in contracts for each
taxpayer dollar paid to the IBRD, while Japan, at the low
end of the scale, wins $6.54 in contracts for each dollar
it contributes (Table 2).

When the substantial procurement returns from IBRD are
added to the more meager ones from IDA, many donor
countries show a positive return on their overall World
Bank contributions--the conclusion reached by the OLIFI
and North-South Institute studies (Table 3). However, the
inclusion of IBRD statistics in the calculation of
procurement benefits is problematic for at least two
reasons: first, the usual means of calculating IBRD
procurement (comparing paid-in capital to the value of
contracts won) inflates the benefits to donor countries
winning IBRD contracts; second, the combination of
inflated IBRD returns with those of IDA helps obscure the
true costs of IDA membership.

The IBRD, unlike IDA, finances its lending operations
primarily from borrowings. (IDA raises most of its money
from the triennial donor country contributions, with a
much smaller portion coming from the repayment of past
loans and transfers from the IBRD.) Member countries
purchase shares in the IBRD but pay in only about 7
percent of the cost of those shares; the remaining 93
percent of the capital is "callable" as a
guarantee or promise to pay. Those guarantees--in effect,
contingent liabilities for the donors--enable the IBRD to
raise the vast majority of the money used for its lending
operations from international capital markets. In that
way, the IBRD's donors' contributions are leveraged,
which allows much more money to flow back to donor
countries in procurement than was actually contributed by
them.

But calculating the IBRD's procurement per dollar committed in that way--that
is, by comparing the value of procurement won to only the paid-in portion of
a country's contributions--ignores the risk that some, if not all, of the callable
capital may someday have to be paid. A call on capital could occur if one or
more of the World Bank's large borrowers, such as Brazil, India, or Mexico,
were to default on their loans--something that even the World Bank has admitted
is not outside the realm of possibility.[20] The exclusion
of all of the callable capital from calculations of procurement benefits, therefore,
underestimates the risk involved in winning those contracts and also inflates
procurement benefits to donor countries.

To properly assess the cost of contracts procured from
the IBRD, a reasonable portion of the risks involved in
winning those contracts should be included. Of course,
the definition of what is reasonable in this case--that
is, what the likelihood of a call on capital is and how
much each donor country would have to ante up in that
event--can be debated. However, almost everyone except
the World Bank agrees that the risk exists.

The World Bank rates the likelihood of a call on capital as extremely low.
In fact, the bank is so confident that none of its large borrowers will ever
default that it has set aside only minuscule provisions against loan losses--about
3 percent of disbursed and outstanding loans plus the present value of the bank's
loan guarantees.[21] However, commercial banks with similarly
risky loan portfolios have assessed risk very differently. In 1989, for instance,
J. P. Morgan set aside 100 percent provisions against loan losses, and Canadian
commercial banks are currently required to put aside against possible losses
35 percent of the value of their loans to their most risky sovereign borrowers.[22]
The inclusion of at least a portion of each donor country's contingent liabilities
significantly reduces the IBRD's otherwise extraordinary procurement returns.[23]

Take the United States, for example. Comparing total U.S. contingent liabilities
to the total amount of IBRD procurements won since the United States became
a member of the World Bank group causes the seemingly extraordinary returns
to disappear. If one compares 35 percent of the subscribed capital (paid-in
plus callable capital) to IBRD procurements (using the Canadian commercial bank
ratio as a guide), the U.S. procurement per dollar committed drops from $17.78
(as shown in Table 2, where none of the contingent liabilities are included)
to only $1.81.[24] If those more meager IBRD returns are added
to IDA's already low procurement returns, even the combination of IBRD and IDA
procurement statistics can no longer hide the fact that the World Bank is a
losing investment for many of its donors. Taking into account potential risks
of a call on capital, the U.S. return on its contributions to the World Bank
as a whole since its creation is only $0.88 per dollar contributed.[25]

The Myth of Procurement Benefits

Despite all of the World Bank's public relations
efforts, the claim that IDA contributions are a boon for
the U.S. economy is simply false. Evidence shows that IDA
contributions are a drain on the American economy and
that the cost of membership in IDA far outweighs the
value of the contracts that are won in return. A handful
of American corporations do well by IDA contracts, but
the costs of those contracts to U.S. taxpayers reveal IDA
contributions for what they really are: pork-barrel
politics.

When the costs of IDA membership are examined
alongside the dismal development record of IDA projects,
little justification for continued IDA funding remains.
IDA projects have caused untold harm to the people,
environments, and economies of many Third World
societies, all the while draining the pocketbooks of
donor country taxpayers. Even the IBRD's seemingly
handsome procurement benefits are based on assumptions
about the financial stability of the World Bank's
borrowers that many, including Western commercial banks
and their state regulators, do not share.

Members of Congress and lawmakers from other donor
countries should reject the public relations pitches that
accompany the World Bank's increasingly desperate search
for new funds and refuse to commit their constituents'
tax dollars to IDA in 1997 and beyond.

Notes

1. The World Bank group comprises four main organizations:
the International Bank for Reconstruction and Development (IBRD), the International
Development Association (IDA), the International Finance Corporation (IFC),
and the Multilateral Investment Guarantee Agency (MIGA).

IDA lends funds mainly to the World Bank
group's poorer member countries--countries with an annual per
capita gross national product of less than $696 (in 1993 U.S.
dollars). IDA funds come mostly in the form of triennial
contributions from richer members, with a smaller amount coming
from the repayment of IDA loans and from transfers from IBRD's
net earnings. IDA lends money (called "credits") to
governments, which must repay the credits over a period of 35 to
40 years (there is a 10-year grace period). IDA credits carry no
interest, but there is an annual service charge of 0.5 percent on
the disbursed amount of each credit.

The IBRD obtains most of its funds through
medium- and long-term borrowings in the capital markets of
Europe, Japan, and the United States. It also borrows funds at
market-based rates from central banks and other government
institutions, and significant amounts of IBRD's funds come from
its paid-in capital, from its retained earnings, and from
repayments of its loans. Member countries purchase shares in the
IBRD but pay in only about 7 percent of the cost of the shares;
the rest is "callable" as a guarantee.

2. Although the IBRD and IDA are two legally and financially
distinct entities, they are known colloquially as the "World Bank."
They publish one joint annual report and share the same staff, who prepare the
loans, and the same executive directors, who approve them. As of 1994, 62 countries
had borrowed from both IDA and IBRD, and some projects, such as Sardar Sarovar
and Singrauli in India and Xiaolangdi in China, have received financing from
both the IBRD and IDA. Critics contend that there is little, if any, difference
in project quality between IDA and IBRD. See, for example, Patricia Adams, "The
World Bank's Finances: An International S&L Crisis," Cato Institute
Policy Analysis no. 215, October 3, 1994; Patricia Adams, Odious Debts: Loose
Lending, Corruption, and the Third World's Environmental Legacy (London and
Toronto: Earthscan, 1991); Bruce Rich, Mortgaging the Earth: Environmental Impoverishment
and the Crisis of Development (Boston: Beacon, 1994); Bradford Morse and Thomas
Berger, Sardar Sarovar: Report of the Independent Review (Ottawa: Resource Futures
International, 1992); World Bank Portfolio Management Taskforce, "Effective
Implementation: Key to Development Impact," Washington, World Bank, 1992;
and World Bank Environment Department, Resettlement and Development: The Bankwide
Review of Projects Involving Involuntary Resettlement (Washington: World Bank,
April 8, 1994).

4. Rich, pp. 86-99, details the failure of the World Bank's
lending for poverty reduction. With regard to the bank's agricultural projects
of the 1980s, he writes, "By the late 1980s it became clear that the performance
of Bank agricultural projects . . . was abysmal in the Bank's own terms of meeting
appraised economic rates of return, avoiding huge cost overruns, and reaching
the poor" (p. 97).

5. World Bank Operations Evaluation Department, 1994 Evaluation
Results (Washington: World Bank, 1996), p. 25; Auditor General of Canada, Report
of the Auditor General of Canada to the House of Commons 1992 (Ottawa: Minister
of Supply and Services Canada, 1992); and Bretton Woods Commission, Bret-ton
Woods: Looking to the Future (Washington: Bretton Woods Commission, 1994).

12. The author sent four letters to the World Bank's External
Affairs Department in July and August 1995. Only one response was received,
and it provided neither the methodology to back up the bank's claims about the
benefits of procurement nor the figures detailing IDA donors' yearly cash contributions.

After repeated requests, the Office of Canadian
Executive Director to the World Bank acknowledged that the
information being sought had been released to the Canadian
Embassy in Washington for an Office of Liaison with International
Financial Institutions study but that the data had been released
"by inadvertence" (personal correspondence with Michael
Jay, executive director's assistant, Office of the Canadian
Executive Director, December 20, 1995).

In a telephone interview on August 11, 1995,
with Ken Ohashi, chief officer, Resource Mobilization Department,
World Bank, Ohashi confirmed that the Resource Mobilization
Department does collect figures on IDA donors' cash contributions
and that such information had previously been released publicly.
However, according to Ohashi, the World Bank has to "draw
the line" at nongovernmental organizations and would not
release the information to the author.

The data the bank provided by fax on August 2,
1996, detailed three alternative methods that the bank used to
calculate U.S. procurement benefits from IDA. Each method yielded
procurement per dollar committed equal to or less than that found
by the author.

The U.S. Department of the Treasury, which does
not maintain data on World Bank procurement that benefits foreign
firms, has repeatedly refused to provide full data on U.S. notes
cashed, and Treasury Department staff have actively urged the
author not to continue his research. The Treasury Department has
even failed to respond to a Freedom of Information Act request
filed more than a year ago (it is legally required to respond
within 10 working days).

13. According to leaked Treasury Department figures, the United
States had paid a total of $16,288,585,233 to IDA as of August 1995. The United
States had also deposited an additional $3,729,480,899 in notes that had yet
to be cashed. The procurement per dollar committed figure of $0.23 for the years
1986-94 was calculated by dividing the United States' total IDA procurement
for those years ($1,707,100,000) by the amount of U.S. IDA cash payments for
the same years ($7,459,661,000).

14. The net cost of U.S. membership in IDA from 1986 to 1994
was calculated by subtracting its total procurement for those years ($1,707,100,000)
from the total amount of U.S. cash payments to IDA for the same years ($7,459,661,000).
The net cost of U.S. membership in IDA since 1960 was calculated by subtracting
total procurement, 1960-1994,

($3,609,000,000) from total U.S. cash payments
to IDA, 1960-1994, ($15,472,085,233).

16. OECD figures measure notes deposited rather than cash
or budgetary contributions. After agreeing to an IDA replenishment, most donor
countries deposit notes, payable to IDA, in an acceptable institution from which
IDA will eventually cash them as needed. IDA need not cash all of the notes
deposited during a three-year funding cycle during that same period. That means
that there will usually be a slight discrepancy between notes cashed and notes
deposited, with notes deposited being the larger of the two amounts. A country's
actual cash contributions to IDA are most accurately measured by notes cashed,
not notes deposited.

17. Compared to $0.23, which results from the use of budgetary
or "cash" contributions.

18. Using the new notes-cashed figures provided by the World
Bank, we obtain similar results for the G-5 countries (the only countries for
which the bank provided data) for 1986-95. The average return for the United
States is $0.23. Japan and Germany also have very low returns, $0.22 and $0.37,
respectively, and France and the United Kingdom earn $1.38 and $1.14, respectively,
per dollar contributed.

19. Office of Liaison with International Financial Institutions,
"Canadian Procurement at the World Bank and Inter- American Development
Bank, Annual Report 1994," March 1995; and Roy Culpeper and Andrew Clark,
High Stakes and Low Incomes: Canada and the Development Bank (Ottawa: North-South
Institute, 1994).

20. Confidential notes from a 1992 presentation to the World
Bank's Board of Executive Directors confirm this concern. "Almost half
of the projected increase in Bank exposure is to countries that are currently
considered to be high risk," said the notes. "It is possible that
a few of today's high risk countries could slide into nonaccrual over the next
few years. . . . External financing pressures can quickly reach crisis proportions,
and the Bank's preferred creditor status could come under stress." "Informal
Board Seminar on the Status of the IBRD Portfolio," Briefing notes, World
Bank, March 6, 1992.

22. Government of Canada, Office of the Superintendent of
Financial Institutions, "Guideline: Exposures to Designated Countries,"
Ottawa, October 1993.

23. The IBRD faces different, though still substantial, risks
of borrower default than do commercial banks. Unlike commercial banks, the IBRD
enjoys "preferred creditor" status with its borrowers. Should borrowers
be unable to service all of their debts, the IBRD will always be paid back first.
Some argue that because the IBRD enjoys preferred creditor status, it is justified
in putting aside lower provisions against loan losses than do commercial banks.

However, the IBRD's preferred creditor status
is not based on the viability of the projects for which it lends
or on the economic strength of its borrowers. Rather, that
preferred creditor status is maintained by routine transfers of
funds from rich country donors (in the form of bilateral aid,
debt restructuring through the Paris Club, new IBRD loans to
refinance old loans coming due, and cheap, interest-free IDA
credits), without which many financially crippled borrowers would
be unable to repay their IBRD loans. Through debt forgiveness and
"round-tripping" loans, the IBRD is able to disguise
its risky loan portfolio as a safe one and ignore the very real
possibility of defaults. See Adams, "The World Bank's
Finances."

24. As a founding member of the World Bank, the United States
had subscribed $30.641 billion in capital to the IBRD at the end of 1994. Comparing
35 percent of that amount ($10.72 billion) to total U.S. procurements won since
1945 ($19.381 billion) results in a U.S. procurement per dollar committed ratio
of only $1.81.

25. To calculate the return on U.S. contributions since the
World Bank's creation, total U.S. IDA procurements since 1960 ($3.609 billion)
were added to total U.S. IBRD procurements since 1945 ($19.381 billion) for
a total of $22.99 billion. That figure was then divided by the total of U.S.
IDA contributions ($15.472 billion) and 35 percent of total IBRD subscribed
capital ($10.720 billion), or $26.192 billion.

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